WORCESTER — When a city pharmacy submitted to an unprecedented agreement with the state attorney general to pay back $1.6 million for allegedly billing the state Medicaid program for prescriptions no one ordered, it apparently came as a surprise to one of the company's most prominent source of customers: AIDS Project Worcester.

AllCare Pharmacy, headquartered in the same building as the AIDS group in the city's Canal District, settled with the AG's office Sept. 6. AIDS Project Worcester board members and officials say they knew nothing about the two-year AG investigation, even though AllCare's founder and owner, Daniel Apelian, is vice president of APW's board of directors.

AllCare's business manager, Aren Leighton, is also a member of the APW board.

APW leaders appear to be standing behind the pharmacy company, which, although it did not admit to or deny the AG's charges that it automatically refilled unrequested prescriptions, must now repay the state.

The repayment process starts with a $266,000 payment to the state from AllCare, which has already been made. For the next five years, the state's Medicaid program, MassHealth, will withhold $266,000 each year from its payments to the company until the entire $1.6 million has been satisfied.

The mandated repayment comes with no order to pay interest on the money or assessment for costs.

Mr. Apelian did not respond to requests for comment for this story. Boston law firm Foley, Hoag released the following statement on AllCare's behalf: "AllCare made a mistake in its operations, cooperated with the AG's Office and is pleased this issue has been resolved."

Under the agreement, AllCare must also comply with strict new reporting and training requirements, including ensuring that no member of MassHealth receive any prescription drug without a specific request from a MassHealth member or caregiver.

"APW has no contractual relationship with AllCare Pharmacy. Dan Apelian and Aren Leighton are valued members of APW's Board of Directors," Ellen E. Foley, president of APW, said in an emailed statement after the Telegram & Gazette made inquiries about the AG settlement.

Martha Akstin, APW's director of community relations, said in a statement, "We operate in close proximity to AllCare and very much appreciate the services AllCare provides to the people we serve."

The for-profit pharmacy has always been a separate legal and financial entity from the nonprofit AIDS group, which provides clinical, outreach and support services to people with AIDS and HIV.

APW is largely funded by federal grant money, with more than $1 million of its nearly $1.4 million budget in 2012 coming from the federal government and the rest from private donors, according to APW's audited financial statement for 2012.

But AllCare has had a close relationship with APW since Mr. Apelian opened a small pharmacy inside APW's offices in 2008 after graduating from the Massachusetts College of Pharmacy and Health Sciences.

AllCare specializes in the expensive drugs used in complex treatment protocols for people with HIV, AIDS, hepatitis C and other chronic illnesses, medications that can cost more than $10,000 a month, with prescription co-payments sometimes totaling more than $100 per order.

One former AllCare customer, a middle-aged Worcester man with HIV who asked not to be identified, said he often got drug packages from AllCare that he hadn't ordered — as many as four a year.

He said that when they arrived, he would just store the medications and use them later. After a while, he said, he became annoyed at having to shell out extra co-payments and asked AllCare to stop sending items he hadn't requested.

The packages kept coming, though. He said he then transferred his prescriptions to another city pharmacy. The former AllCare customer said his experience was common among other patients, as indicated by the AG's probe into the pharmacy's business practices.

Mr. Apelian noted his $8,216 sublease arrangement with APW in fiscal 2012 and $14,321 in fiscal 2011 in conflict-of-interest disclosures on the group's tax returns, along with the fact that APW makes some co-payments for its clients to AllCare.

Ms. Akstin said those co-payments amounted to no more than $300 to $500 in total, and were under a state program in 2009 and 2010 that has since been discontinued.

On APW's tax return for fiscal 2009, Mr. Apelian — then a director of the group's board — made no disclosures even though the pharmacy had opened on the premises of APW.

Shortly after he founded the business, he was hailed by the late Joseph McKee, the longtime executive director of APW, as "The Angel Pharmacist" for his commitment to serving customers with AIDS and HIV.

In a recently published report about AllCare, Mr. Apelian noted that he trains all staff members in APW services. And Mr. Apelian's wife, Nicole Arvanigian, has volunteered at APW two days a week, according to a 2009 T&G story.

The company has since grown, expanding its workforce to 35, launching a statewide mail-order business and two years ago moving into modern, larger offices a few feet from APW in a quiet courtyard behind 85 Green St.

Despite the close relationship, Ms. Akstin, the nonprofit's director of community relations, said in an interview earlier this month that she had no idea that AllCare was involved in a legal settlement that Attorney General Martha Coakley said was the first of its kind in state history.

"I don't know anything about it," Ms. Akstin said.

Ms. Akstin also said APW does not direct clients to AllCare.

"We're consumer-centered, so if a patient is familiar with a national chain such as Walgreens or CVS we'd help them with that," she said.

About a half-dozen AIDS Project Worcester board members contacted by the T&G did not return voice mail messages seeking comment.

One longtime board member, Jeff Burk, said last week that he found out about the AG settlement on Sept. 12, about a week after it was announced by the AG's office, and two years after the investigation started in September 2011.

Mr. Burk said he expected APW's executive committee to discuss the matter at its meeting later this month, and that he also expected Mr. Apelian would recuse himself.

Richard Allen, a Boston lawyer who specializes in nonprofits' legal issues and former chief of the attorney general's nonprofit and charity division, said Mr. Apelian and Ms. Leighton, AllCare business manager, had no legal obligation to disclose the existence of the AG's investigation or settlement.

Nor does Mr. Apelian's disclosure of his company's financial interest with APW appear to fall short of legal tax requirements, he said.

However, Gary Snyder, a Detroit-based advocate of more openness in the nonprofit sector, maintained that Mr. Apelian had an obligation to do more than was strictly required by law.

"Why wasn't he considerate enough to step down from the board when this happened?" Mr. Snyder said.

And, Mr. Snyder said that if APW does a substantial amount of business with AllCare, then Mr. Apelian's "disclosures are totally inadequate."

Alec Loftus, a spokesman for MassHealth, said AllCare won't face sanctions as long as it abides by the terms of the non-appealable settlement.

Contact Shaun Sutner at ssutner@telegram.com. Follow him on Twitter @ssutner.

CDL A DELIVERY DRIVERS Home Every Night! Needed for our Worcester Depot! Drive local - No more spending valuable nights away from your family! As a Direct Store Delivery Representative YOU have the opportunity to make a difference with our customers! Provide excellent customer service; interact in a positive manner with our customers; deliver our products to local stores. Be home every night! Work for a Company that has been around for over 80 years! Minimum of 3 months driving experience with CDL A/B; GED or HS diploma required; Must be able to drive a standard transmission. EEO/Veteran/Disability Growing Strong Since1933!